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Global shares down on US-China trade and Middle East tensions

French, German and eurozone PMIs were weaker than expected, with investors still worried over US-China trade relations

23 September 2019 - 12:08 Ritvik Carvalho

Picture: 123RF/SOLAR SEVEN

London — Global shares dipped on Monday as weaker-than-expected economic surveys added to investor worries over the unresolved US-China trade dispute’s effects on the world economy, while oil gained more than 1% as Middle East tensions remained elevated.

European stock markets opened lower as surveys of purchasing managers from France, Germany, and the eurozone came in weaker than expected. The pan-European Stoxx 600 index was down 0.9%.

Eurozone business growth has stalled this month, a survey showed on Monday, less than two weeks after outgoing European Central Bank (ECB) president Mario Draghi pledged indefinite stimulus to revive the bloc'’s ailing economy.

The euro fell 0.4% to $1.0966 after the German purchasing managers’ index (PMI) release, its lowest in over a week against the dollar. Germany’s DAX 30 index hit its lowest level in nearly two weeks, down 1.35% after the eurozone data, while France’s CAC 40 fell nearly 1%.

The MSCI all country world index, which tracks shares across 47 countries was down 0.25%.

Oil prices rose on doubts about how fast Saudi Arabia can restore full crude output after an attack earlier this month on its largest processing facility. Brent crude futures — the international benchmark for oil — rose to as much as $65.50 a barrel, a gain of more than 1%. They last traded 0.5% higher at $64.59.

“Considering that Germany already contracted in the second quarter, today’s numbers effectively increase the risk of another negative quarter in the third, which, by definition, would constitute a technical recession,” said Marios Hadjikyriacos, investment analyst at XM. “It seems that the malaise in manufacturing — due to trade and Brexit worries — has started to spread to the much larger services sector as well.”

Most Asian share markets slipped as investors waited for more clarity on US- China trade talks.

Market sentiment was fragile, with civil unrest in Hong Kong and worries that a trade deal between the US and China could take a long time to materialise. Moves were further exaggerated by low volumes as Japanese markets were shut for a public holiday.

MSCI’s broadest index of Asia-Pacific shares excluding Japan were down 0.2% at 510.04 points. It is still up more than 3% so far in September.

US stock futures — earlier up 0.4% — sank after the PMI data in Europe. S&P 500 E-mini futures were last down 0.2%.

Trade concerns

Over the weekend, the US trade representative’s office issued a brief statement characterising the two days of talks with China as “productive”. It added that a principal-level trade meeting in Washington would take place in October, as previously planned.

China’s commerce ministry, in a brief statement, described the talks as “constructive”, and said they had also had a good discussion on “detailed arrangements” for the high-level talks in October. Additionally, the US removed tariffs from more than 400 Chinese products in response to requests from US companies.

Despite the improved tone, markets still remain unconvinced about the possibility of an imminent deal.

“There are real concerns about the impact on economies from the trade dispute,” said Michael McCarthy, Sydney-based strategist at CMC Markets. “People are probably getting an idea that this will be a long negotiation. And the longer it lingers the more impact it will have economically.”

Investors were rattled by news on Friday that Chinese officials unexpectedly canceled a visit to US farms this week following their two days of negotiations in Washington.

In the Middle East, news that five Yemeni civilians were killed in air strikes by the Saudi-led coalition further soured investor appetite. The Pentagon has ordered additional troops to be deployed in the Gulf region to strengthen Saudi Arabia’s air and missile defences following an attack on Saudi oil facilities.

US secretary of state Mike Pompeo said on Sunday that the additional troops are for “deterrence and defence” and that Washington aims to avoid war with Iran.

US crude oil futures rose to $58.36 a barrel, a rise of 0.5%.

Markets will closely watch September manufacturing activity surveys due from the US later in the day.

In currencies, the dollar gained 0.25% against a basket of currencies. The pound was 0.3% lower at $1.2431. A ruling from Britain’s supreme court is due this week on whether Prime Minister Boris Johnson acted unlawfully in suspending parliament for five weeks.